Varun Lohchab, Head of Institutional Research at HDFC Securities, believes the Union Budget 2026 will serve as a critical anchor for foreign capital rather than a game-changing event. His outlook suggests continuity in government policy with sustained focus on growth and fiscal discipline, while market dynamics remain earnings-driven in the current environment.

Budget 2026 Expectations and Policy Continuity

Lohchab expects the government to maintain its established trajectory without radical reformist steps or significant incremental economic risks. The budget is anticipated to continue the focus on manufacturing and capital expenditure, aligned with AtmaNirbhar Bharat and Make in India policies.

Economic Growth and Foreign Investment Outlook

The upcoming budget represents a critical anchor for foreign institutional investors, particularly given India's economic growth projections. Lohchab highlighted key GDP growth expectations that could influence foreign capital flows.

Foreign investors will closely monitor the government's stance on tax stability, regulatory predictability, capex focus, and fiscal discipline. A favorable approach on these parameters could catalyze foreign flows into India, especially as GDP growth is expected to recover in FY27.

Monetary Policy and Inflation Assessment

Despite currently subdued inflation, Lohchab does not anticipate rate cuts in the February RBI policy meeting. Instead, he expects the central bank to focus on liquidity measures and transmission of previous rate cuts. Inflation is projected to remain benign, staying within the 3.00%-4.50% range during FY27, well within RBI's 4.00%-6.00% target band.

For FY27, a 25 basis point cut remains possible if inflation stays comfortable and growth requires additional support, though a 50 basis point reduction appears unlikely under current estimates.

Market Performance and Earnings Outlook

Lohchab expects Q3 FY26 results to be moderately healthy, similar to the previous quarter. His sectoral analysis reveals divergent performance expectations across different segments.

For the broader market, Nifty is expected to deliver high single to low double-digit earnings growth in FY26, with an estimated 12.00%+ growth in FY27. This earnings delivery could create a 5.00%-10.00% upside in Nifty over the next year.

Gold Reserves and Balance Sheet Impact

Rising gold prices have strengthened India's financial position through multiple channels. The value of India's gold reserves crossed ₹100.00 billion in CY25, with gold's share in forex reserves increasing to approximately 16.00% in January 2026, compared to 8.00% at FY23 end.

While higher gold prices increase the probability of sovereign gold bond redemptions, adding to government liabilities, they have contributed to reducing physical gold imports and containing the current account deficit. Overall, rising gold prices have strengthened India's balance sheet despite increased SGB redemption liabilities.

Investment Strategy in Current Market Environment

Lohchab emphasizes that the market currently acts as a great leveller, correcting valuation froth without adequate earnings support while rewarding strong earnings delivery. He advocates for bottom-up stock picking as the most prudent investment approach, suggesting that index-based or sector approaches may not deliver meaningful outperformance.

In the midcap and smallcap space, he recommends selectivity due to elevated aggregate valuations despite recent consolidation. Post-December quarter results, preference should be given to stocks with sustained earnings momentum and stable margins, as elevated valuations leave little room for error.

A detailed policy analysis reveals that for Indian farmers, the Budget has increasingly transformed into a ritual rather than an effective remedy, highlighting systemic issues in agricultural governance and policy implementation.

Unfulfilled Budget Promises

The gap between budget announcements and actual implementation remains a critical concern. The promised increase in Kisan Credit Card limit from ₹3 lakh to ₹5 lakh, announced in the previous year's budget, is yet to be officially notified. This delay exemplifies how budget announcements often remain statements of intent rather than actionable policies.

Agricultural Economics and Subsidy Structure

The analysis reveals significant changes in agricultural arithmetic that challenge existing subsidy frameworks. Agriculture currently grows at approximately 3.00% while population growth has declined to 0.50%, fundamentally altering the economic landscape. Despite this shift, fertilizer subsidy policies continue without corresponding adjustments.

The food security framework shows stark contradictions in targeting:

Crop Insurance and Compensation Challenges

The Pradhan Mantri Fasal Bima Yojana (PMFBY) demonstrates structural issues despite significant government investment. Under the current framework, the Centre and states together contribute 90.00% of the premium costs. However, widespread dissatisfaction persists among both farmers and states regarding claim settlement processes and transparency mechanisms.

Multiple crops have traded below Minimum Support Price (MSP), including:

• Bajra, cotton, gram, groundnut, maize
• Masur, moong, ragi, soybean, urad
• Common vegetables showing price declines of approximately 33.00% despite 4.00% increase in fruit and vegetable output

Currency Impact and Trade Policy

Currency depreciation has provided unintended relief to the agricultural sector. The rupee's movement from ₹60.00 per dollar in 2014 to near ₹90.00 has created natural import barriers and enhanced export competitiveness.

Economic Position and Per Capita Analysis

India's economic standing presents a paradox in global rankings. While the country has achieved the position of world's fourth-largest economy by GDP, its per capita performance tells a different story.

The analysis suggests that farmers will receive higher farm-gate prices only when purchasing power increases, consumption expands, and economic growth becomes more evenly distributed across sectors and regions. The current policy framework requires fundamental restructuring to address these systemic challenges and move beyond the ritual approach toward genuine remedial measures.